Some people may view the terms "financial advisor" and "municipal advisor" as interchangeable, but Dave Sanchez, director of the Securities and Exchange Commission's Office of Municipal Securities, isn't one of them.
It's been 15 years since Congress established a new class of regulated person required to register with the SEC: municipal advisors,
"But when I speak with market participants or pick up an official statement or visit an issuer's website, I am regularly confronted with a title that imprecisely reflects the nature of the relationship between municipal entities and/or obligated persons and their advisors: financial advisor," he said.
While it's not required, using regulatory terms such as "municipal advisor" in solicitations and offering documents is helpful as it clearly signals to investors that those professionals are subject to rules and regulations intended to protect investors, municipal entities and obligated persons, he said.
When it comes to hiring professionals, municipal entities will often select them via a competitive request for proposal or request for qualifications process, he said.
While RFP/Q responses do not by themselves constitute municipal advisory activity, Sanchez said he's seen instances — most notably involving
"In our review of these RFP/Qs, we have either seen municipal entities be silent on requiring that respondents to an RFP/Q be registered as a municipal advisor with the commission and Municipal Securities Rulemaking Board ("MSRB") or, worse, affirmatively say that registration as a municipal advisor is not a requirement," Sanchez said.
Considering that unregistered entities might be engaging in what appears to be municipal advisory activity, "you may want to confirm not only that any professional providing municipal advisory services to you is properly registered but also that you have in your RFP/Qs for services or work constituting municipal advisory activity a requirement that respondents be registered with the commission and the MSRB as municipal advisors in order to submit a response," he said.
At the very least, such RFP/Qs shouldn't be soliciting the services of a "financial advisor" or "consultant," as that could create the impression that they don't need to be registered with the SEC or the MSRB, Sanchez said.
"If you are seeking the services of a municipal advisor, it would be helpful to use the term municipal advisor in your RFP/Qs," he said.
Another place where Sanchez has seen a "concerning use" of financial advisor where municipal advisor should be is in offering documents.
"Using 'municipal advisor' tells investors that the firm, its associated persons, and its activities are subject to rules and regulations; that the commission monitors municipal advisors for compliance; and takes necessary action to enforce Congress' mandate," he said.
Sanchez believes that if you are using municipal advisors in your transactions, it would be beneficial to use the defined term "municipal advisor" in your offering documents in order to accurately characterize the professionals serving in that role.
"Using a term that is explicitly defined by law may also help avoid including confusing or ambiguous statements in disclosures to investors," he said.
There are "strong benefits" associated with retaining people or firms registered and regulated as municipal advisors as it demonstrates that those people or firms are aware that they are engaging in municipal advisory activity, Sanchez said. Registering as a municipal advisor may also show that the advisor knows it has certain legal obligations.
"These obligations include, among other things, a requirement to disclose to clients any material conflicts of interest," the SEC official said in the prepared remarks. "If you remember nothing else from today, remember this: your municipal advisor is required to always act in your best interest."
